It's important to understand that five-year forecasts are going to be
wrong, but it's good to do them anyway.

There are a lot of reasons it can be frightening to take a clear, level-headed look toward the future. We avoid this exercise in our personal lives because any kind of long-term planning reveals immediately that there's no way we can afford college for our two children. And we'd better do something about that, because--given current trend lines--there's also no way we can ever afford to retire unless our children become abundant financial successes.

That being the case, it may be somewhat unreasonable for us to castigate cities, counties and states for doing much the same thing: engaging in a managerial myopia that ignores a long-term focus on budgets or capital planning. Yet, as hypocritical as it may sound, we've been doing just that for some time. Our contention is pretty simple: If a government doesn't at least make an effort to predict things like revenues, expenditures, changes in the workforce and upcoming needs for technology or infrastructure, it places its managers at a decided disadvantage and practically guarantees that they'll be continually dealing with one unanticipated crisis after another.

Why then do a number of governments hide from the future?

"The obstacles to doing it are political as much as anything," one city finance director told us recently. "Once you say you're going to meet benchmarks over a period of time, you're pretty much accountable for them. If you don't articulate past a year at a time, then people have a hard time saying you didn't accomplish what you set out to do."

Of course, setting long-term goals and making long-range estimates on expenditures and revenues requires cultural change. People have to get used to being off the mark--and having other people know it.

"It is very important to understand that your five-year forecast is going to be wrong," Neil Bergsman, budget director in Maryland, agrees. "But it's good to do because it makes you look at the relationship between your revenue and expenditure trends and the impact of your existing and new spending commitments."

The political and cultural issues that long-term planning raises aren't the only obstacles we've heard over the years. And upon reflection, there's no question that some of the reasons entities haven't accomplished much in this field are reasonable. For example, legislators who need to run for reelection every two years may not be predisposed to think about a longer time period.

"We do have some legislators who have been around for quite a while. I think they understand the pluses of maintaining that long-term view," says Perry Comeaux, director of the Department of Administration in Nevada. "It's easier for some of the old-timers to stay focused on that. They're not as concerned about delivering specifics to their constituents every two years." Comeaux is worried that when term limits go into effect in Nevada in 2007, short-term thinking will be even more exaggerated.

One of the biggest problems is the uncertainty of federal funding. The federal budget that affected state budgets for FY 2004 didn't actually pass until February 2004--four months before the close of that fiscal year for most states. "Most people would agree that the system was broken, but it was broken at the federal level," says Marcia Howard, director of Federal Funds Information for States. "The inability of the U.S. Congress to pass a budget in a timely fashion leaves states in a very uncertain place that makes it difficult for them to do responsible fiscal planning."

In fact, the authorization in federal law for welfare, special education and highways has run out, and the programs operate on short- term extensions. Overall, states generally assume that each year they'll get something similar to the amount they got the year before. But that's a dangerous assumption at best. Unanswerable questions about federal funding abound. Will the state be successful in going after discretionary grants? Will Medicaid rules be changed? Will there be substantial changes in the availability of federal funds for other programs? Highway money is of particular concern right now, because the trust fund is slowly running out of cash and it's unclear where new sources of revenue will be found.

But understanding the difficulties--both political and managerial--in long-term planning in no way minimizes the value of the effort. At the risk of sounding like some kind of sweaty guy in the gym, "no pain, no gain." Whether or not long-term estimates are always accurate--and even if they're hard to do--the effort is worthwhile. Even when estimates are scary, they are useful tools for managers intent on keeping structural balance. As Maryland's Bergsman reports, "We have frequently published forecasts with negative numbers at the bottom. We're not delighted to do that. But we know we have to balance the budget every year. So those negative numbers won't come true."